How Algorithm Trading Could Make You Rich

He’s an entrepreneur, a devoted family man… and a do-it-yourself investor.

But what he’s doing (along with the money he’s making) would not have been possible just a few years ago.

We’ve all seen the effects of technology on things like taxis, retail stores, and even our currency.

But what hasn’t been reported all that much is the immense damage it’s done to Wall Street.

It’s all thanks to men like Houghton.

You see, just a decade ago, high-tech, market-beating algorithms were the pride of the big trading houses. They could afford the computer power to run the complex math it took to outsmart the market.

These firms did well.

The money managed by so-called quant funds doubled over the last decade… climbing to the trillion-dollar mark this year.

“Over the past decade the results of systematic quantitative investing have been undeniable,” the boss at one popular hedge fund said. “People have gone from being skeptical and uninterested to being artificial intelligence groupies.”

But the tide is no longer rushing into the harbor.

It’s pulling the waves of money back out to sea.

And again, men like Houghton are the reason why.

Sure, after the sale of his tech business he could have opened an account with just about any of the planet’s high-priced quant funds.

But he didn’t.

Instead, he turned to Quantopian, a crowdsourced hedge fund that allows ordinary investors to create and test their own trading algorithms.

There are dozens of sites and tools just like it across the web where everyday folks can use the world’s massive collective computer power to eke out oversized returns from the stock market.

It’s doing for investing what bitcoin did for currency… turning the whole damned thing on its head.

Your Own Algorithm?

While I certainly haven’t talked about it often, I’ve been using a tool just like this for several years. In fact, its success is what has made this project possible.

But my goal isn’t to boast… it’s to spread the word.

As small-scale investors, the odds are stacked against us.

These days, 75% of all market volume is automated. Handpicking stocks in a world where the majority of trades are preprogrammed to outsmart us certainly doesn’t put the odds in our favor.

That’s why more everyday investors are turning to automated systems… and winning.

“Algorithm trading is getting more popular now as you have got better technologies, regulators push towards transparent and electronic trading and it’s increasingly becoming difficult to make money using traditional trading tools,” the head of quant strategy at Société Générale said.

Of course, we suspect few readers are all that excited to dust off their math books and write their own equations. And even fewer are willing to learn the coding skills it takes to implement the math.

But I’m not alone. The oh-so-eager world of Wall Street has brought algorithmic trading straight to ordinary investors through an exchange-traded fund (ETF).

Since its inception late last year, the tiny AI Powered Equity ETF (NYSE: AIEQ) has outperformed the stock market.

It’s up about 11% since October while the S&P is up just over 7%.

The ETF works just as we’d expect. It processes more than a million data points each day and uses what it gleans to predict the moves of some 6,000 stocks. It then tosses the best 30 to 70 into its portfolio.

In theory, thanks to machine learning capabilities, the computers behind the fund should get smarter as time goes on.

That said, the ETF remains quite small and illiquid.

It doesn’t get our money yet… not until it shows some steady, long-term results.

Playing a New Game

My point with all of this is that the realm of investing is changing.

When I entered the business so many years ago, computerized trading was just coming online.

Most investing logic was calculated the old-fashioned way… with lots of decipherin’, phone calls, and guesses.

These days, that’s all changed.

As with most new technology, we don’t have much of a choice in the matter.

We can either follow along… or sit on the sidelines as someone else makes the money.

One of those options, of course, is unacceptable.

But don’t worry. If you’re willing to invest just a small amount of money, I have a solution.

It’s a penny stock algorithm that I’ve personally tested and used for years. It could put an extra $11,505 in your pocket each week.

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Andrew Snyder is a senior contributing editor for Cashflow For Retirement. Andrew entered the world of finance as a broker working with one of the nation’s largest investment firms. He has an MBA, has authored an award-winning book, and has been featured in numerous publications--with over 1,500 articles and columns in his name. Andrew works with investment experts, contributing authors, and Cashflow For Retirement staff to provide the most accurate and relevant information possible to his readers.